Trade Disruptions
Russia-Ukraine Conflict On 24 February 2022, Russia invaded Ukraine in an attempt to take over Kyiv, launching the Russia-Ukraine war. In response, the United States issued an announcement implementing a new series of sanctions to deter Russia. The first announcement was made on 24 February, banning the export of any technology with potential military use to Russia, in addition to placing restrictions on select Russian institutions, groups and individuals to the US financial market. The financial restrictions in turn would hinder Russia’s trade capabilities by limiting access to funding and causing the inability to make trade transactions in United States currency. The 11 March announcement, Executive order 14068, prohibits the importation of many Russian goods such as seafood, alcoholic beverages and diamonds. It also forbids the export of various luxury goods.[1] Russia has retaliated with their own trade sanctions. The Russian Government has restricted foreign ships from their ports and banned the export of a wide range of equipment (i.e. medical, vehicle, agricultural, telecom and electrical), and timber.[2] The conflict and the resulting actions by the United States and counteractions by Russia have impacted U.S. exports to Russia which have decreased about 79% in value compared to exports recorded at the same time last year.[3] The United States has also alleviated pressure on Ukraine. On 9 May, the Department of Commerce issued a statement suspending the additional 25% section 232 tariffs on imports of Ukrainian steel. This move was extremely impactful as steel production accounts for around 18% of Ukrainian exports in 2018.[4] The United States has also exported many weapons and technologies as reinforcement to Ukraine’s military.[5] Looking Ahead: As the war persists, the US Government will most likely continue to aid Ukraine through strong trade ties to help support the Ukraine economy. Accordingly, US-Russia trade tensions will most likely continue at least as long as the war lasts. Supply Chain Disruptions Shocks in global value chains brought on by the Russia-Ukraine conflict, COVID and other external matters have contributed to product shortages and inflated prices. The Russia-Ukraine conflict has not only impacted US trade with Russia and Ukraine, but the global value chain. For instance, Ukraine and Russia supply neon gas that is needed for the lasers involved in the chip-making process[6] creating production delays in industries where chips are utilized such as cars, phones, etc. China is currently facing a resurgence of COVID and was forced into lockdown again, limiting production factories and causing bottlenecks. The effects are being felt by more than 180 companies around the world.[7] In the United States and Australia, various industries were negatively affected with shortages ranging from chemicals utilized in hospital x-ray to construction materials. In Vietnam the effects are also being felt, with apparel factories struggling to fulfill orders because Chinese inputs for clothing and shoes are unavailable.[8] Environmental concerns are also impacting the supply chain. Late in 2021, Canada experienced a poor crop season due to arid conditions that limited crop output and forced redirection in trade flows. The United States filled in gaps by exporting corn and soybeans to Canada and Europe.[9] During this time, Canada also experienced severe flooding that caused delays for railways and trucks at the port of Vancouver.[10] This year the United States Department of Agriculture has reported there has been drought conditions in the U.S that have impacted crops, and a bird flu epidemic that have impacted other products in the food sector, such as eggs and meat.[11] The lingering effects of severe weather events, COVID and the Russia-Ukraine conflict have amplified the supply challenges of 2022. Looking Ahead: Geopolitics, the lingering effects of the pandemic, and other climate events continue to challenge global supply chains. These and other events that affect raw material and intermediate good availability, labor shortages, and port congestion are likely to continue and are important to monitor as they impact companies’ domestic and global operations. Trade Facilitation Indo-Pacific Economic Framework (IPEF) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) On October 27 2021, the Biden Administration announced the possibility of an Indo-Pacific economic partnership that would focus on “trade facilitation, standards for the digital economy and technology, supply chain resiliency, decarbonization and clean energy, infrastructure, worker standards, and other areas of shared interest.” These plans have been launched as the “Indo-Pacific Economic Framework for Prosperity” during President Biden’s visits to South Korea and Japan May 20-24.[12] In addition to the United States, the 12 members include Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam, representing 40% of the world’s GDP. Four countries -- Australia, Singapore, Japan and South Korea -- already have free trade agreements with the United States.[13] The IPEF focuses on four pillars: Connected Economy, Resilient Economy, Clean Economy and Fair Economy. Notably absent are negotiations on tariff liberalization. Japan had shown some initial hesitance that the IPEF could undermine the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Japan continues to encourage the United States to sign the CPTPP.[14] At the same time, other countries are looking at joining both agreements. South Korea has officially applied to the CPTPP. [15] Thailand, Philippines and Indonesia showed interest earlier this year in joining the CPTPP, but have yet to apply. Outside of Asia, Colombia has considered joining, and China, Taiwan, Ecuador and Great Britain have all submitted formal membership applications to join the CPTPP.[16] Looking Ahead: It is not certain if the existing members and prospective members of the CPTPP will join the IPEF. These developments will remain unclear until negotiations proceed, and the framework is officially signed. India On 2 April a joint-media release announced the official signing of the Australia-India Comprehensive Economic Cooperation Agreement. In 2020, India was Australia’s seventh largest trading partner, and trade between the two nations was valued at $24.3 billion. The agreement removed tariffs on more than 85% of Australian exports to India with a value over $12.6 billion, and will rise to almost 91% over 10 years. India will remove tariffs on Australian goods such as “sheep meat, wool, copper, coal, alumina, fresh Australian rock lobster, and some critical minerals and non-ferrous metals.” In addition, 96% of Indian exports to Australia will be duty-free. India has greater opportunities to further expand trade globally. In late April, UK Prime Minister Boris Johnson and India Prime Minister Narendra Modi met to discuss cooperation between the two countries. Johnson proclaimed that “a bilateral free-trade deal could be wrapped up by October” explaining that a “free-trade agreement would help India sell more rice and textiles to Britain.” [17] UK-India trade was valued at 24.3 billion British pounds in 2021.[18] Another potential trade agreement partner for India is the European Union. On 8 May, trade negotiations that were halted in 2017 were resumed. The European Union is India's third largest trading partner, accounting for €88 billion worth of trade in goods in 2021 and India is the European Union’s tenth largest partner.[19] These two agreements are interesting to note given the stalled discussions between the United States and India. India lost GSP benefits -- unilateral duty-free access -- into the United States in 2019. GSP for Indian goods is likely not to be reinstated in the near future nor trade negotiations likely to advance given India’s current position in not condemning Russia’s invasion of Ukraine. Looking Ahead: India is the second most populated country in the world and has a quickly developing economy. These free trade agreements could be a key stimulus in advancing their economy more, and potential for key allies to gain greater access into the India market than U.S exporters. Conclusion The events of 2022 have reinforced that the trade environment can be volatile and has highlighted the importance of supply chain resilience and need to see possible opportunities amongst the challenges. Laura Heneghan [email protected] [1]U.S. Economic Sanctions Against Russia Grow Amid the Ukraine Crisis, JD Supra, 20 April 2022 [2]Russia hits back at Western sanctions with export bans, BBC, 10 March 2022 [3]Raimondo Announces Temporary Suspension of 232 Tariffs on Ukraine Steel, Department of Commerce, 9 May 2022 [4]U.S. temporarily suspends tariffs on steel imported from Ukraine, CBS, 10 May 2022 [5]What weapons has the US given Ukraine, BBC, 21 April 2022 [6]Why the global supply chain mess is getting so much worse, CNN, 30 March 2022 [7]More Than 180 Companies Say They’ve Been Hit by China Lockdowns, Bloomberg, 16 May 2022 [8]China’s Lockdowns Are Squeezing Factories Far and Wide, Bloomberg, 16 May 2022 [9]U.S. Crop Exporters Shift Trade Flows as Drought Hits Harvests, Bloomberg, 12 November 2021 [10]One of the largest ports in North America is experiencing big delays due to flooding in Pacific Northwest, officials say, CNN, 18 November 2021 [11] Product shortages and soaring prices reveal fragility of U.S. supply chain, CBS, 13 April 2022 [12]Raimondo: Biden to ‘launch’ the IPEF in Japan, InsideTrade, 17 May 2022 [13]Indo-Pacific Economic Framework talks to include 13 initial countries, InsideTrade, 23 May 2022 [14]Will Japan’s dim view of US Indo-Pacific strategy overshadow Biden’s Tokyo visit?, Reuters, 12 May 2022 [15]South Korea's incoming government considers joining U.S. economic pact, Reuters, 9 May 2022 [16]Will Japan’s dim view of US Indo-Pacific strategy overshadow Biden’s Tokyo visit?, Reuters, 12 May 2022 [17]Britain and India aim for free trade deal by October, says Johnson, CNBC, 22 April 2022 [18]Trade and Investment Facts Sheet, Department for International Trade, 2022 [19]EU trade relations with India, European Commission Comments are closed.
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